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What Are MSMEs? Its Definition, Benefits, Registration Process And Classifications Explained

image representing msmes in India

MSMEs are the growth engine of new India, they’ve proved essential in this age of economic development that we’re witnessing around us. MSMEs have slowly helped revive the artisan class in the far reaches of the country by providing them with employment and in turn access to loans and other services. They constantly support the up-gradation of technology, infrastructure development within the country, and have triggered the modernization of the country as a whole.

Definition of MSMEs

Micro, Small and Medium Enterprises are better known by the acronym MSME. MSMEs are the backbone of the Indian economy. Silently operating in different areas across the country, more than 6 crore MSMEs have a crucial role to play in building a stronger and self-reliant India. These small economic engines have a huge impact on the country’s GDP.

MSMEs contribute a staggering 30% to the country’s GDP, and around 45% of the manufacturing output, and approximately 48% of the country’s exports. Additionally, more than 11 crore people are employed in the MSME sector. They’re rightly referred to as the ‘Backbone of the country.’

The MSME ministry in order to strengthen the backbone of the country targets to increase its contribution towards GDP by up to 50% by 2025 as India moves ahead to become a $5 trillion economy.

New Definition of MSMEs (effective from 1st July 2020)

The criterion of defining MSME enterprises was based on the MSMED Act, 2006. It was different for manufacturing and services units. It was also very low in terms of financial limits (i.e. Investment amount). Since then, the economy has undergone significant changes.

A new composite formula of classification for manufacturing and service units has been notified. Now, there is no difference between the manufacturing and service sectors.

The government of India made a proposal to redefine MSMEs by the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing enterprises. Under this bill, there would be no need for frequent inspections to check the required investments needed to be made in the plant and machinery needed. Also, the operations of MSMEs would be allowed to continue in a transparent, non-discriminatory, and objective manner.

The new criterion is based on the Investment Amount and Turnover of the enterprise.

Category

Investment limit (in Rs.)

Turnover limit (in Rs.)

Micro

1 crore

5 crore

Small

10 crore

50 crore

Medium

50 crore

250 crore

While computing the Turnover of the MSME enterprises, it is provisioned to exclude Exports turnover i.e. turnover with respect to exports will not be counted in the limits of turnover for any category of MSME units whether micro, small or medium. It is particularly important to note that the provision of excluding the exports from the counting of turnover is going to encourage the MSMEs to export more and more without fearing losing the benefits of an MSME unit. This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs.

Learn more about – What Is RoDTEP Scheme? Its Benefits, Requirements For Traders & Exporters

Union Ministry of Micro, Small and Medium Enterprises has issued a Gazette notification to notify the new definition and criteria of MSMEs in the country. The new definition and criterion are effective fr

om 1st July 2020.

Previous/ Old Definition of MSMEs

Micro, Small and Medium Enterprises (MSME), are small-sized business enterprises defined in terms of their investment. According to the provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the MSMEs are classified into two categories:

  1. Manufacturing Enterprises
  2. Service Enterprises
1. Manufacturing Enterprises

The Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.

Enterprises

Investment in Plant & Machinery

Micro Enterprises

Investment does not exceed Rs. 25 Lakh

Small Enterprises

Investment is more than Rs. 25 Lakh but does not exceed Rs. 5 Crore

Medium Enterprises

Investment is more than Rs. 5 Crore but does not exceed Rs. 10 Crore

 

2. Service Enterprises

The Service Enterprise is defined in terms of investment in equipment.

EnterprisesInvestment in Equipment
Micro EnterprisesInvestment does not exceed Rs. 10 Lakh
Small EnterprisesInvestment is more than Rs. 10 Lakh but does not exceed Rs. 2 Crore
Medium EnterprisesInvestment is more than Rs. 2 Crore but does not exceed Rs. 5 Crore

Learn more about – What Is A Small Scale Enterprise? Types Of Small Scale Industries (SSI) & Business Registration Process

The Objective of the MSME Act

The Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 facilitates the promotion, development and also enhances the competitiveness of micro, small and medium enterprises and for matters connected therewith and incidental thereto.

Benefits of Registration as MSME (Udyam)

  1. MSME enterprises can get finance facilities from Banks without collateral requirements
  2. Schemes by the Central Government for the development of MSMEs
  3. Subsidies and Government Schemes to promote specific industries
  4. Reservation of Products to be produced by MSMEs only
  5. Concession/ subventions on Bank Interest and Debt servicing
  6. Concession on Taxation
  7. Preference in procuring Government tenders,
  8. Stamp duty and Octroi benefits,
  9. Concession in electricity bills
  10. Reduced fees for Trademark registration
  11. Reservation policies to manufacturing/ production sector enterprises
  12. No more delayed payment troubles
  13. Time-bound resolution of disputes with Buyers through conciliation and arbitration
  14. Reimbursement of ISO Certification expenses
  15. Foreign Business Expo
  16. Facilities for Upgradation of Technology used in the industry

Learn more about – Benefits Of MSME Registration In India

How to Register as an MSME (Udyam)?

In this fast-moving phase of the economy and technology-driven processes, things are getting more organized and are paving ways to ease of doing business. The Indian Government too is taking various initiatives to encourage small-sized enterprises to exist and grow efficiently.

To register as an MSME (Udyam) all it takes is to file a web-based online form wherein the applicant is required to have an Aadhaar card along with a linked mobile number to get it certified. The process has been so simplified that the certificate is generated while making an application itself and the fields of the e-form for MSME registration are listed out below:

Learn more about – What Is Udyam Registration For MSME? Step-By-Step Process Of MSME Registration And Its 10 Benefits

  • Aadhaar Number: Fill 12-digit Aadhaar number issued to the applicant.
  • Name of Applicant: Fill in the name of the applicant strictly as mentioned on the Aadhaar Card issued by UIDAI.
  • Social Category: Fill the Social Category (General, Scheduled Caste, Scheduled Tribe or Other Backward Castes (OBC)
  • Gender: Fill in the gender of the applicant
  • Physically Handicapped: Select the status from provided options
  • Name of Enterprise / Business: Fill in the name of Business / Enterprise which will get printed on the MSME Certificate
  • Type of Organization: Select the type of organization from the given options which will get printed on the MSME Certificate.
  • PAN: Fill 10 Digit PAN Number in case of Co-Operative, Private Limited, Public Limited, and Limited Liability Partnership It. Will be optional in the remaining type of Organization.
  • Location of Plant: Fill in the address of the plant. In the case of multiple plant locations, the applicant can click on the add plant button.
  • Office Address: Fill in the office address, if the office address is different from the plant address.
  • Date of Commencement of Business: Fill in the date of Commencement of Business, the same shall be mentioned in the MSME Certificate.
  • Previous Registration Details(if any): If Applicant’s enterprise, for which the Udyog Aadhaar is being applied, is already issued a valid EM-I/II by the concerned GM (DIC) as per the MSMED Act 2006 or the SSI registration prevailing prior to the said Act, such number may be mentioned in the appropriate place.
  • Bank Details: Fill in the applicant’s bank account number and bank IFSC Code.
  • Major Activity: The major activity i.e. either “Manufacturing” or “Service” may be chosen by the enterprise for Udyog Aadhaar.
  • National Industry Classification Code (NIC Code): Fill in the NIC Code of the business activity.
  • The person employed: Fill in the total number of persons employed who are directly been paid salary/ wages by the enterprise.
  • Investment in Plant & Machinery / Equipment: Fill in the total investment made in the plant & Machinery/Equipment.
  • DIC: The Applicant, based on the location of the Enterprise, has to fill in the location of DIC. This Column will be active and show the option only when there is more than one DIC in the district.
  • Submit: Click on the submit button and enter the OTP that will be shared on the registered/linked mobile number

Any changes in the investment: If there are any changes in the investment in plant & Machinery or the equipment and the enterprises have already filed Udyog Aadhaar Memorandum (UAM) shall inform the District Industries Centre of the same in writing within three months of the change.

Learn more about – What Is Udyog Aadhar? Step-By-Step Registration Process And Benefits Of Udyog Aadhar For MSME Explained

MSME Framework

The MSME ministry in order to strengthen the backbone of the country targets to increase its contribution towards GDP by up to 50% by 2025 as India moves ahead to become a $5 trillion economy. But to understand the reasons better, let’s look at it from a P-M-E framework.

1. MSME Production & Manufacturing

With approximately 45 lac MSMEs throughout the country, it contributes around 6.11% of GDP from manufacturing and 24.63% of GDP from service activities. They are crucial to the production and manufacturing of a variety of products for both domestic as well as international markets. They have collaborated and worked with concerned ministries, state governments, and stakeholders towards the upbringing of rural areas through the growth and development of khadi, village, and coir industries.

Moreover, small businesses promote innovation as they provide an opportunity to budding entrepreneurs to build creative products and boost competition in business and fuel growth.

Learn more about – Which Business Comes Under MSME? Explore the Complete List of MSME Businesses

2. MSME Employment

MSMEs employ around 120 million persons, becoming the second-largest employment generating sector after agriculture. They have played an essential role in providing employment opportunities in rural areas. These opportunities result in the need for people to use financial services and products like banks which in turn helps drive the growth of the country’s GDP. The industrialization of these areas with a low capital cost has only been possible only due to the MSME contribution.

They have been the real driving force behind socio-economic development within the country. A very important fact to note is that small businesses promote all-inclusive growth by providing employment opportunities, to people belonging to weaker sections of the society in rural areas. Development in different areas is only possible when MSMEs play a larger role within the economy.

The Indian MSME sector has always provided silent support to the national economy. It has successfully acted as a defense against global economic shock and adversities; thus pushing India towards a robust global economy. As a result, it is paramount now more than ever that schemes like Atmanirbhar Bharat try to provide the capability and capacity to develop appropriate local technology and provide fierce competition in domestic and international markets to help MSMEs.

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